16 Sep 2012: Income Class

Dylan Matthews over at WonkBlog writes What is the middle class? where he notes that by the definitions put forward by Romney and Obama, only 4% of the country are not middle class.

Actually, Matthews steals some of my thunder. For a long time, I've been advocating a definition of the classes broken down by quintiles. It just works well. If we use it then we have lower, lower-middle, middle, upper-middle, and upper classes.

In his article, he provides a useful graph of the average income of every group in addition to this Romney/Obama 4% upper class. I've altered the graph so that it only includes the quintiles, because I think the 4% group only confuses matters. As incomes increase they only get more unequal. This is probably why even very wealthy people don't see themselves as rich. People who make a million dollars a year have lots of interactions with people who make $20 million. Still, the graph is distorted because it uses means rather than medians, but you get the idea:

There is a wrinkle here. The Upper quintile only includes incomes of those between 80% and 99%. This makes sense, because the top 1% would distort the graph and make it less useful. According to Matthews, the cutoff for the upper class is $101,582. The other quintile borders are very close to the average of the surrounding quintiles. You can see this in the graph: the bottom four quintiles are fairly linear. It is only in the top quintile that things go wrong.

We can estimate the non-linearity of income distributions by comparing the actual border income with the simple average of the surrounding border averages. Here are the data for the top and bottom quintiles:

Class

Border

Error

Actual

Average

Lower

$20,262

$20,222

0.2%

Upper

$101,582

$129,050

27.0%

Pretty stark, eh?

My point is that we should stop talking about people who make $100,000 per year as middle class. These people may feel like they are middle class, but they just aren't. Having said this, I don't mean to suggest that they are rich. I don't even think someone making $250,000 a year is rich. I figure we can save the term "rich" for people in the 1%. And if it comes down to it, the 0.1% are the super rich and the 0.01% are the stinking rich.